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fmc technologies 2002ar

  1. 1. A Y e a r of Con t i n u i ng Pr og r e s s FMC Technologies, Inc. 2002 Annual Report
  2. 2. Corporate Profile FMC Technologies, Inc. is a global leader providing mission-critical solutions, based on innovative, industry-leading technologies, for the energy, food processing and air transportation industries. The Company designs, manufactures and services sophisticated systems and products for its customers through its Energy Systems (comprising Energy Production Systems and Energy Processing Systems), FoodTech and Airport Systems businesses. FMC Technologies operates 32 manufacturing facilities in 15 countries. about the cover Project Manager Jose Osuna inspects the High- Pressure/High-Temperature subsea tree produced by FMC Energy Systems for BP’s Thunder Horse deepwater project in the Gulf of Mexico. This is the first subsea tree produced under our five-year frame agreement with BP.
  3. 3. t a b l e o f c o n t e n t s Highlights 2 To Our Shareholders 3 FMC Energy Systems “March to the Sea” 8 FMC FoodTech Cooks up Solutions 14 FMC Airport Systems Charts a Flight Plan 16 Strategic Outlook 18 Glossary of Industry Terms 20 Directors and Officers 22 Financial Review 23 Corporate Information inside back cover
  4. 4. H i g h l i g h t s ($ in millions, except per share data) 2002 2001 Revenue (by location of customer): United States $ 831.1 $ 885.1 Norway 215.0 150.7 All other countries 1,025.4 892.1 Total revenue $ 2,071.5 $ 1,927.9 Income (loss): Income before the cumulative effect of accounting changes $ 64.1 $ 39.4 Net income (loss) $ (129.7) $ 34.7 Earnings (loss) per diluted share: Income before the cumulative effect of accounting changes $ 0.96 $ 0.60 Net income (loss) $ (1.94) $ 0.53 Income per diluted share (pro forma basis):(1)(2) Income before the cumulative effect of accounting changes (pro forma basis) $ 0.96 $ 0.82 Financial and other data: Common stock price range $ 23.83 - $14.30 $ 22.48 - $10.99 At December 31 Net debt(3) $ 202.5 $ 245.0 Order backlog(4) $ 1,151.7 $ 960.7 Number of employees 8,500 8,500 Number of stockholders of record 7,687 8,085 (1) Income per diluted share (pro forma basis) should not be considered in isolation nor as an alternative for earnings per diluted share measured in accordance with U.S. generally accepted accounting principles (“GAAP”), nor as the sole measure of our profitability. (2) The following is a reconciliation of income per diluted share (pro forma basis), which is a non-GAAP financial measure, to earnings per diluted share before the cumulative effect of accounting changes, measured on the basis of GAAP: 2002 2001 Income per diluted share (pro forma basis) $ 0.96 $ 0.82 Less: Restructuring and asset impairment charges(a) – (0.16) Income tax provisions related to our separation from FMC Corporation(b) – (0.13) Add: Pro forma interest expense(c) – 0.07 Earnings per diluted share before the cumulative effect of changes in accounting principles (GAAP basis) $ 0.96 $ 0.60 (a) In 2001, we recorded restructuring charges, primarily representing initiatives undertaken to lower our cost structure in response to adverse market conditions, and asset impairment charges. (b) In 2001, we recorded income tax provisions related to repatriation of offshore earnings and the reorganization of our worldwide entities in anticipation of our separation from FMC Corporation. (c) Prior to June 1, 2001, our results were carved out from the consolidated financial statements of FMC Corporation. Pro forma interest expense represents an estimate of the additional interest expense that we would have incurred had we been a stand-alone entity for the entire year. (3) Net debt consists of short-term debt, long-term debt and the current portion of long-term debt, less cash and cash equivalents. (4) Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date. 2 FMC Technologies, Inc. 2002 Annual Report
  5. 5. to Our shareholders I n our first full year of operation, we benefited from the strong market position we have in our businesses. We continued to listen to the customer, create solutions, innovate continuously, maximize value and win with teamwork. We profited from the strong demand for subsea systems. Further, we took actions to mit- igate the effects of the difficult market conditions most of our other businesses faced. Consequently, on balance, 2002 was a year of continuing progress for FMC Technologies. Net Debt and Sale-Leaseback Obligations $M Earnings, cash flow and stock performance improved Net Debt 400 Sale-Leaseback Obligations In 2002, our full-year earnings, before the effect of an accounting 350 change, increased to $0.96 per diluted share. Revenues increased 300 to $2.07 billion in 2002, compared to $1.93 billion in 2001. We 250 ended the year with $1.15 billion in total backlog, up by $191 million 200 from a year earlier. 150 Results for our businesses were mixed in 2002. Energy Systems 100 sales and earnings improved on strong subsea results, which were 50 partially offset by declines in other product lines. FoodTech’s 2002 0 sales were down, while operating earnings improved compared to 2000 2001 2002 2001. Airport Systems was profitable despite extremely poor All years at December 31. Net debt consists of short- term debt, long-term debt and the current portion market conditions. of long-term debt, less cash and cash equivalents. At December 31, 2000, net debt is presented on a pro forma basis, as defined in the Separation and Our strong free cash flow enabled us to continue to pay down debt Distribution Agreement with FMC Corporation. in 2002. Since the beginning of 2001, we have applied over $97 million of free cash flow to reduce our balance sheet debt, and we eliminated $33 million in lease obligations. Additionally, we made cash contributions of $35 million to our pension fund. Last year, our stock outperformed our peer group. At year-end Subsea Tree Market 2002, our stock price had increased over 24 percent since the first 550 Forecast of the year, while the oilfield service index increased less than 1 500 percent and the S&P 500 index declined 22 percent in the same 450 Installed to Date 400 period. 350 300 Strength in subsea drove Energy Systems 250 200 While uncertainty over economic and political stability seems to 150 have restricted oil and gas exploration and development spending 100 50 in 2002, the development of large offshore oil fields continued. 0 2002 2003 2004 2005 2006 Large, low-cost offshore reservoirs are being discovered and devel- oped by oil companies in increasingly deeper water. The develop- Source: Quest Offshore ment of these reservoirs, coupled with our know-how and technical capability in subsea production systems, continue to drive the growth of our Energy Systems business. To Our Shareholders 3
  6. 6. Energy Systems’ sales of $1.33 billion in 2002 were up Inbound Orders $210 million, or 19 percent, while earnings of $77.5 $M million were up 8 percent compared with a year ago. 2500 Our Energy Production Systems revenues, driven by our FoodTech subsea business, rose to $940 million, compared to 2000 Airport Systems $726 million in 2001 – a 29 percent increase. However, 1500 our margins in subsea continued to be constrained by Energy Processing competitive pressures and the increased costs 1000 associated with the customized work required for Energy Production some of our larger projects. 500 Difficult market conditions adversely affected most of 0 2000 2001 2002 our other Energy Systems businesses. Except for subsea projects, oilfield activity levels were lower than last year. Rig counts in the United States were down almost 30 percent in 2002 from 2001 levels. This had a Order Backlog particularly negative impact on our WECO®/Chiksan® $M products, included in Energy Processing Systems, and 1200 our surface completion product lines, included in FoodTech Energy Production Systems. Oilfield infrastructure 1000 Airport Systems spending, which affects the remainder of Energy Energy Processing 800 Processing Systems, also remained at low levels last year. All the above resulted in Energy Production 600 Energy Production Systems generating increased sales due to subsea, 400 while Energy Processing Systems reacted more to general oilfield markets and sales declined. 200 0 Inbound orders for Energy Systems in 2002 were $1.59 2000 2001 2002 billion, up 16 percent from 2001. Deepwater develop- All years at December 31. ment activities were responsible for Energy Production Systems’ inbound order growth of 23 percent com- pared to 2001, while Energy Processing Systems’ inbound declined 3 percent. Total backlog for Energy FoodTech Operating Capital Employed Systems at year-end 2002 was $933 million, up 38 per- cent during 2002. $M 350 FoodTech benefited from lower expenses 300 Food company capital spending continued at low 250 levels throughout 2002. The food processing industry 200 is going through a period of consolidation. Consequently, our customers continue to delay 150 projects and defer capital expenditures. When the 100 industry consolidation slows and some of their capital 50 expenditure projects go forward, we should benefit. 0 2000 2001 2002 During the year, FoodTech sales were $497 million, down 3 percent compared with 2001 sales, and oper- All years at December 31. ating earnings of $43.3 million were up 9 percent compared with 2001. The profit improvement resulted 4 FMC Technologies, Inc. 2002 Annual Report
  7. 7. from lower amortization expense and cost reduction efforts undertaken in 2002 and 2001. Airport Systems results partially offset by U.S. Air Force program Airport Systems’ 2002 sales of $245 million declined 18 percent and earnings of $15.8 million were down 13 percent compared to 2001. Decreased volumes of all commercial ground support and passenger loading equipment contributed to lower results, reflecting the poor business conditions in the commercial airline industry. These results were partially offset by increased deliver- ies of the Halvorsen loader to the U.S. Air Force. We delivered 133 Halvorsen loaders in 2002, compared to Halvorsen Loaders Delivered 19 units delivered in 2001. The Halvorsen loader pro- gram enables us to maintain our manufacturing base 150 and product development programs despite depressed 120 industry conditions. We have firm orders for Halvorsen loaders through most of 2003, but it is unclear when 90 we will see stronger demand for our products from commercial airlines. 60 People enabled progress 30 We owe the progress we made last year, in great part, 0 2001 2002 to the hard work of our employees. Our results in 2002 are based on people exerting extraordinary efforts and technical competence. Over the past couple of years in the Energy Systems business, we earned BP’s subsea business in the Gulf of Mexico and entered into an Industry Safety Record alliance with Norsk Hydro. In addition, we retained Per 100 full-time workers Shell’s business and supplied systems to Kerr-McGee and ExxonMobil. Our people did an excellent job of 10 Total Recordable Incidence Rate controlling working capital in FMC FoodTech; that 8.1 business now has record low levels of funds tied up in 8 inventory and receivables. Rising to the challenge, the 6.1 Airport Systems team successfully ramped up produc- 6 Lost Workday Incidence Rate tion of the Halvorsen to meet the Air Force’s needs. 4 We also are pleased with the progress in our health, safety and environmental performance. For example, 2 1.24 2.0 last year our Houston Energy Systems manufacturing 1.8 0 0.31 facility reached 7.7 million work hours without a lost- FMC Technologies Manufacturing Industry Oil and Gas Industry (2002) (2001 Average) (2001 Average) time accident, and several locations are progressing toward industry safety records. We continually strive to Source: U.S. Bureau of Labor Statistics improve in this area because it’s important to our employees, our customers and our communities. To Our Shareholders 5
  8. 8. In all our businesses, we have industry-leading tech- nologies developed by some of the best minds in their Laws and stan- respective industries. Our intellectual capital has devel- dards vary in dif- oped innovations such as high-pressure/high-tempera- ETHICS and corporate governance ferent countries and cultures. As we ture subsea trees, highly reliable flowline products and expand our activi- asset management systems, total systems diagnostics ties, our overriding goal and continuing for food processing management, and Web-based commitment is to maintain uniformly high life cycle analysis solutions for air transportation standards wherever we conduct business. equipment. Our company has a strong commit- ment to high ethical standards built on One of the reasons we believe we have been success- trust in our dealings with investors, employees, vendors and customers. This ful is because, in many ways, we do not think of trust is essential to our long-term success. ourselves as a big company. Our employee teams are In addition to our day-to-day business proud of what their particular plant or location does practices, we have taken a number of steps to ensure that we are upholding high eth- and how they perform. Each business succeeds based ical standards. on the products of that business and how well these First, we have implemented the products serve their customers’ needs. We also have FMC Technologies Commitment to Ethics, low employee turnover, which provides continuity, which specifies appropriate business conduct for employees, contractors and experience and higher levels of performance. suppliers. This program also includes a training and certification program for Our Board of Directors complements our talented employees, which helps ensure that our group of employees. In 2002, we welcomed a new people are knowledgeable about and member to the Board – Rich Pattarozzi, former Vice adhering to our principles of business con- duct. President of Shell Oil Company and head of Shell’s Our company does not tolerate viola- pacesetting deepwater developments in the Gulf of tions of law or actions that are inconsistent Mexico. Rich’s addition enhances our Board with a with the Commitment to Ethics. career’s worth of valuable experience. Employees, contractors and suppliers are responsible for familiarizing themselves with this commitment, abiding by it and Outlook expected to be highlighted by subsea promptly reporting any violations. We pro- vide an employee resolution process and a In Energy Systems, we anticipate that our 2003 rev- third-party-administered ethics hotline to enues will be up over 2002 levels as a result of subsea facilitate the reporting of infractions. growth, where our continuing focus will be on We also practice high ethical standards in all aspects of corporate execution. Our strong backlog means we have won governance. For example, both the Audit the right to prove ourselves capable of solving and Compensation and Organization increasingly difficult technical challenges for our committees of the Board of Directors are composed entirely of independent subsea customers. Over the next several months, directors. we intend to continue to prove to these customers Our vision is to be the premier that they made the right choice in choosing provider of world-class, mission-critical FMC Technologies. An increase in oilfield activity and technology solutions for the energy, food infrastructure spending from the low levels of 2002 processing and air transportation indus- tries. We believe we can realize our vision should occur in 2003, which would benefit our Energy only if we uphold all the objectives of Processing Systems businesses. responsible performance, including conducting business in an ethical manner. FoodTech is well positioned to serve our food processing customers as the economy improves and the industry consolidation slows. Our FoodTech business addresses important issues, such as food safety and the growing demand for convenience food. 6 FMC Technologies, Inc. 2002 Annual Report
  9. 9. However, we do not believe the food processing indus- try will see much growth in 2003, and, consequently, our performance in FoodTech is expected to be flat with 2002. We continue to be concerned about the impact of commercial airline industry conditions on Airport Systems. We do not anticipate any significant upturn in purchases by our commercial airline customers in 2003. Therefore, we plan to focus primarily on supplying the U.S. Air Force, as well as serving the needs of our air freight customers. Additionally, we plan to continue building our product base and improving our cost structure so that we will be well positioned when this market returns. On balance, 2003 should be another good year, with earnings at $1.05 to $1.10 per share, based on a recovery in oilfield activity. We also anticipate continu- ing positive cash flow. On an absolute basis – and certainly on a relative basis – 2002 was a good year for us. The resolve and determination of our people, as well as our technology and market positions, enabled us to capitalize on the opportunities that presented themselves during the year. We believe these factors will continue to serve us well as FMC Technologies moves into its second full year as an independent company. Sincerely, Joseph H. Netherland Chairman, President and Chief Executive Officer February 21, 2003 To Our Shareholders 7
  10. 10. The “March to the sea” drives fmc Energy Systems Deeper & higher 2002. FMC Energy Systems coped with the challenge Traditionally, subsea trees have of success in 2002. With $676 million in backlog been custom designed to meet the at the beginning of the year, growing to $933 requirements of a specific project. million by year’s end, the challenge has been to This approach is not only costly; it also execute. One very important element of execution is tends to increase delivery and installation on-time delivery, especially in the case of offshore developments. time and may make performance reliability Deepwater rigs cost about $300,000 a day to operate. On-time unpredictable. delivery of our systems means that an operator can minimize In 1996, Shell and FMC Energy Systems development and production costs. instituted an alliance to develop a break- STANDARDIZATION reaps rewards for Shell/FMC Energy Systems alliance through innovation that has significantly reduced installation and project cycle time, Quality and reliability are equally important elements of as well as capital expenditures. The solution execution. Subsea wells must produce large volumes to justify entailed developing a large number of proj- their cost. By producing high-quality, highly reliable systems, we ects using standardized processes for the help our customers optimize their operations and maximize design, manufacture, testing and installation returns. support for subsea trees, manifolds and jumpers. During 2002, much of our subsea activity concentrated on the Following implementation of the Gulf of Mexico for customers such as BP, Shell and Kerr-McGee. alliance’s standardized processes, installation However, we also were busy supplying and servicing, for exam- times for the tree system were reduced by 50 ple, Petrobras and Shell offshore Brazil; TotalFinaElf, ExxonMobil, percent, and tree delivery times have been reduced by as much as 60 percent. Capital Statoil and Agip offshore West Africa; and Norsk Hydro, Statoil expenditure reductions of more than 40 per- and TotalFinaElf in the North Sea. cent have been realized. The standard system As we rise to the challenge of producing an annual record design has proved itself with number of subsea trees for our customers, we are focusing on numerous Shell projects in helping them solve a number of unprecedented technical the Gulf of Mexico, includ- hurdles. Those hurdles include producing oil from the ocean floor ing Angus, Crosby, Einset, in water depths as great as 10,000 feet. At that depth, produc- Europa, King, Macaroni and tion equipment has to withstand temperatures up to 350 Serrano/Oregano.Shell’s degrees Fahrenheit (ºF) and pressures up to 15,000 pounds per Coulomb, Na Kika, Manatee, and Serrano/Oregano Phase 2 square inch (psi). That contrasts with many land-based wells, projects, which represent the with typical drilling temperatures of 80ºF to 100ºF and pressures next generation of deepwa- of 5,000 psi or lower. ter developments, will all benefit from the new Our total solutions approach to high-pressure/high-temperature approach. (HP/HT) subsea developments combines years of experience in The lessons learned HP/HT surface well solutions with advanced subsea technology through standardization and expertise. The BP Thunder Horse tree is the first vertical and the alliance can add value to other proj- subsea tree in the industry designed to handle production ects. The Shell/FMC Energy Systems alliance pressures of 15,000 psi and temperatures of 350ºF, in waters has improved the Gulf of Mexico’s bench- marks for installation costs, cycle time and more than a mile deep. Our five-year frame agreement with BP capital expenditures. Compared with the calls for us to provide subsea trees, controls, manifolds, well con- prealliance benchmarks, the alliance nection systems and related offshore services to BP for its deep- approach has resulted in lower costs and water Gulf of Mexico exploration and production activities. improved safety, thereby providing Shell with greater reliability and operability. 8 FMC Technologies, Inc. 2002 Annual Report
  11. 11. J.D. Lockhart, Subsea Assembly Technician, works on a subsea tree for Shell’s Na Kika development in the Mississippi Canyon area of the ultra-deepwater Gulf of Mexico. FMC Energy Systems is scheduled to produce the subsea systems for Shell’s Coulomb project, in a satel- lite field to Na Kika, which is anticipated to be the world’s deepest installation at about 7,600 feet. FMC Energy Systems 9
  12. 12. Stuart Fleming, Subsea Assembly While pioneering HP/HT solutions for BP, we have been applying Technician, readies a subsea assembly lessons learned to achieve breakthrough solutions for Shell. Last year, for BP’s Thunder Horse project. The BP we produced the Shell Na Kika tree for water depths as great as 7,000 Thunder Horse tree is the first vertical feet, and we are scheduled to produce the subsea trees for Shell’s subsea tree in the industry designed to Coulomb field, which is anticipated to be the world’s deepest installation at about 7,600 feet. handle production pressures of 15,000 psi and temperatures of 350ºF, in Subsea sales and inbound orders were strong throughout 2002. In waters more than a mile deep. the deepwater Gulf of Mexico, Kerr-McGee chose us to provide sub- Manufacturing ramps up to MEET DEMAND for subsea trees sea trees and associated services for the Gunnison field area project. The Gunnison area is being developed using a truss Spar, similar to those used in the development of Kerr-McGee’s Nansen and Boomvang fields in the deepwater Gulf of Mexico. We provided the offshore industry’s first Enhanced Horizontal Tree™ for Nansen and Boomvang, which were the first fields to use a truss Spar. Building on our subsea frame contract with BP, we also signed a strategic sourcing agreement in 2002 to supply metering systems for BP’s deepwater developments in the Gulf of Mexico. The first orders under the agreement were for BP’s Holstein and Thunder Horse fields. The metering units supplied for these developments provide unattended metering and transfer of oil or gas from the well to the pipeline. In West Africa, we were awarded a contract for subsea systems to be installed offshore Equatorial Guinea by a subsidiary of ExxonMobil. The subsea systems for Mobil Equatorial Guinea’s Zafiro Southern Expansion Area project include 19 subsea trees, five HOST® (hinge- over subsea template) and production manifold systems, a water injection manifold, topside and subsea control systems and related equipment and services. We also were selected to provide continuing (cont’d on pg.12) 10 FMC Technologies, Inc. 2002 Annual Report
  13. 13. With about $823 million in backlog at year-end 2002, mostly for subsea systems, our Energy Manufacturing ramps up to MEET DEMAND for subsea trees Production Systems business is focusing on fulfilling an ambitious production schedule in 2003. FMC Energy Systems’ manufacturing facilities in Dunfermline, Scotland; Houston, Texas; Kongsberg, Norway; Rio de Janeiro, Brazil; and Singapore produce complex subsea completion sys- tems for use in the major offshore producing basins of the world. We built a record number of subsea systems in 2002 and expect to build about as many in 2003. To meet these rapidly increasing demands, we completed an expansion of the Houston facility last year, adding additional office space, a new assem- bly bay, a new test pit and various other equipment designed to help execute the projects. We also expanded our facilities in Brazil. Our focus on exe- cution enables us to reduce costs and lead time and to add even more value for our customers. We have taken several steps to maximize exe- cution while ramping up to produce greater vol- umes, including standardizing products and improving efficiency in the manufacturing area. Because of our long-term relationships with major subsea operators, we are able to standardize key components of subsea trees. The more that we can standardize, the more we can reduce costs and lead times while also improving quality and safety. For example, Shell analyzed their projects in the Gulf of Mexico and determined that we could design a subsea system that meets the needs of most of their deepwater wells in the Gulf. They FMC Energy Systems FMC Energy Systems’ developed the standard, and we are building trees provides a comprehensive to meet that standard. Web-enabled Asset selection of integrated Building trees quickly requires improved Management system is efficiency. So we are working to reduce the time systems and stand-alone that it takes to perform each step in building a tree, used by Alvin Brown, products for subsea com- including supply chain management, machining, Service Technician, to welding and assembly processes. Throughout the pletion and processing, check cement heads for process, we focus on ensuring that issues are wellhead, fluid control, addressed early and are not passed along to the Schlumberger. Our Asset next step. hydrocarbon transfer, Management system In assembling a tree, we use a “pit crew” con- storage and production cept. The pit crew comprises all the talent and dis- helps ensure that the right applications. We have one ciplines necessary to solve issues immediately, such products are shipped to as engineering, materials and quality support. Using of the broadest ranges of our customers’ job sites this concept, tree assemblers are able to focus their product offerings in our efforts exclusively on building the tree. This has on time and in top work- reduced our tree assembly time by 50 percent while peer group. ing condition. enabling us to maintain high standards of quality and reliability. Besides handling a large volume of work, our manufacturing teams are proud of their safety record. For example, in 2002, our Houston manu- facturing facility reached 7.7 million hours without a lost-time accident, achieving one of the best safety records in the industry. FMC Energy Systems 11
  14. 14. The challenges of developing solu- tions for the HP/HT environment of subsea equipment and services for extensions from the BP Thunder Horse field have driv- TotalFinaElf’s Girassol field development offshore en a number of innovations by FMC Angola. Energy Systems. Two of the most notable devel- opments are an ultra-deepwater, high-pressure Offshore Brazil, we remained active in 2002, supplying riser system and Novolastic™ HT insulation. At the outset of work on the solution for equipment for Petrobras’ Campos Basin develop- Thunder Horse, a great deal of effort focused on ments. We provided subsea trees, manifolds and relat- value engineering the subsea tree and riser sys- ed equipment for Petrobras’ Roncador and Albacora tem. The challenge was to scale up the Innovative SOLUTIONS DEVELOPED for BP Thunder Horse challenges East fields, as well as pipeline-related equipment for traditional system to deal with the HP/HT the Barracuda and Caratinga fields. Our gas lift subsea environment while containing costs. This effort was the start of a continuing manifold for the Roncador field, which was installed series of new approaches to meeting the chal- last year at a depth of 6,200 feet, set a world record lenges of the ultra-deepwater environment, as for manifold installation water depth. well as the customer’s requirements for unsur- passed safety and operational flexibility. The plat- In the North Sea region, we signed a subsea produc- form for Thunder Horse is anticipated to be the largest production semi-submersible ever built. It tion system frame agreement and a subsea service will be held in place by dynamic positioning, agreement extension with Statoil in 2002. We also which puts considerable demands on the riser were chosen by Statoil to provide a complete subsea system. This aspect, along with the HP/HT and production system, technical services and operations depth factors, as well as the force of the ocean support for the Alpha North project, a satellite to the current, demanded that we develop a unique riser system. Sleipner West field. Norsk Hydro, one of our global The system developed for Thunder Horse is alliance customers, selected us to supply subsea sys- the world’s first 15,000 psi open-water riser tems and related services for the Vigdis Extension field, system rated to 10,000 feet of water depth. It is offshore Norway. We also signed a cooperative agree- designed to resist material fatigue by dealing with a wide range of changing forces over long ment with Prosafe and Halliburton to provide a full periods of time due to ocean currents, water range of light and medium well intervention services pressure, vessel motions and wave actions. from an offshore support vessel in the North Sea. This Additionally, by employing a highly sophisticat- agreement significantly enhances our subsea service ed control system, the riser is designed to facili- capabilities in this region. tate multiple operations — completion, well testing, intervention and workover — on a large number of wells in succession, while affording a In addition, we struck agreements for SOFEC™ CALM high degree of safety and protection for the envi- buoy marine export terminals offshore Algeria and ronment. Ecuador. The multiyear, $240 million agreement in A high-temperature insulation we developed Algeria is with Sonatrach-TRC, the Algerian Oil and for the Thunder Horse subsea tree is anoth- er unique, innovative solution. Our Novolastic™ Gas Company, for the development of five offshore HT insulation is designed to withstand internal loading stations to transport crude oil and condensate temperatures of 350ºF and to retain its insulating from onshore facilities. Also, MODEC International properties under extreme ultra-deepwater condi- LLC, our joint venture with MODEC Inc. of Tokyo, was tions over a long period of time. Both the riser and insulation solutions we developed for BP’s deep- chosen by El Paso Energy Partners to provide the engi- water Gulf of Mexico projects are leading innova- neering, procurement and construction of the hull, tions on the threshold of the next generation of mooring and production riser system for Anadarko’s ultra-deepwater developments. Marco Polo project in the Gulf of Mexico. This project is anticipated to employ the world's deepest TLP (Tension Leg Platform). While the U.S. surface rig activity level was low last year, certain areas of our surface wellhead business were active. One of those was our dry tree product line for offshore platforms. We signed a total vendor man- agement frame agreement for surface wellhead solu- tions with Norsk Hydro last year. This agreement is part 12 FMC Technologies, Inc. 2002 Annual Report
  15. 15. Environmental, Health and Safety PERFORMANCE We accept our responsibility to help protect human health, safety and the environment. This of Norsk Hydro’s “fully integrated supplier” strategy, in responsibility is a core value of the Company and has which the supplier serves as a project team member. It evolved through the leadership, dedication and covers the supply of fully instrumented surface well- teamwork of our employees. head and tree systems, as well as related equipment Our Environmental, Health and Safety (EHS) per- and services, for Norsk Hydro’s Grane, Oseberg-B, formance is a vital concern of our customers, share- holders, employees and the communities in which we Oseberg-C and Brage platform projects in the North operate. In order to meet our EHS responsibilities, we: Sea. We also were chosen to supply dry tree systems • Continuously monitor employee health and for TotalFinaElf’s Matterhorn and Murphy Oil’s Front safety; Runner projects in the Gulf of Mexico. • Communicate and work with communities, local emergency response teams, medical facili- Our surface wellhead business also was active in Asia, ties and fire departments; Africa and the Middle East in 2002, providing equip- • Promote the safety and protection of the ment and services under long-term agreements with environment during transportation, storage and customers such as ExxonMobil Malaysia, Shell Sakhalin waste disposal; Island, Esso Chad, ExxonMobil Nigeria and Abu Dhabi • Maintain a cooperative working relationship Company in the United Arab Emirates. with the government; and • Responsibly serve our customers who want to The low U.S. land rig count levels in 2002 adversely operate and market environmentally safe affected sales for WECO® and Chicksan® products. products and protect their employees. Consequently, our fluid control business team focused A number of our locations hold industry safety on asset management activities for its substantial cus- records in their respective industries, and company- tomer base. Flowline Asset Management tracks and wide we substantially outperform our peers. For maintains high-pressure flowline equipment through a example, in 2002, FMC Technologies’ Total Web-enabled solution. This total solutions approach Recordable Incidence Rate (TRIR) was 1.24 and Lost identifies the customer’s equipment, tracks usage pat- Workday Incidence Rate (LWIR) was 0.31 per hundred terns and establishes inspection and repair intervals to full-time workers. According to the latest data from ensure that the right products are shipped to the job the U.S. Bureau of Labor Statistics, our rates compare site on time and in top working condition. By providing with TRIRs of 8.1 and 6.1 and LWIRs of 1.8 and 2.0 services directly to operators as well as major oilfield per hundred full-time workers for the manufacturing service firms such as BJ Services, Halliburton and and oil and gas industries, respectively. Schlumberger, our asset management team helps While we are pleased with our provide optimal equipment utilization by ensuring con- employees’ safety performance, sistently fast, safe, trouble-free flowline connections. we continually review proce- dures, practices and work environments in order to continuously improve. Our goal is to achieve an injury- free workplace while safe- guarding the environment and our neighbors. FMC Energy Systems employees, including this team producing the subsea trees for ExxonMobil’s Zafiro project, offshore West Africa, take pride in their environmental, health and safety performance. FMC Energy Systems 13
  16. 16. FMC FoodTechCooks up solutions for customer service & Food Safety In 2002, FMC FoodTech reorganized to Our systems are designed with built-in safety features. provide continuing high levels of We provide food safety solutions in many food service and a more thorough under- processing applications, such as cooking, frying, standing of the issues facing our cus- freezing and chilling; in-container sterilization tomers. Our business is organized to be a and pasteurization; tomato and citrus processing; solutions provider for customers who value top-quali- automatic clean-up systems; and food portioning. ty, technologically advanced equipment, as well as experience and strategic advice. FoodTech’s GYRoCOMPACT® M7 Spiral freezer is an example of designed-in food safety. This freezer’s Our organization enables us to recommend integrated design helps reduce the opportunity for the growth of system solutions. This reduces the time our customers microorganisms and helps prevent cross-contamination have to spend on processing issues, giving them more of food. The freezer’s technology is based on designing time to manage the rest of their businesses. This also equipment surfaces that are easy to reach and provides customers with specifically tailored service maintain. and equipment options, on-site technical support and off-site equipment monitoring. Our aseptic fillers and sterilizers also help food compa- nies deal with food safety issues. These systems offer We provide solutions for a variety of customers. the food processing industry a highly effective aseptic For example, FoodTech provided Conagra with an method of bulk packaging and sterilization processing. automated sterilization system, featuring our Automated Guided Vehicles, which requires no Cooked food can become contaminated if it is not manual labor in the cooking process. In 2002, we also frozen or cooked at uniform temperatures. The less worked with Burgers’ Ozark Country Cured Hams to temperature variation there is in the oven, the safer the fully automate their ham processing operation, includ- cooking process is. Our ovens are designed to prevent ing installing waterjet portioning systems. Burgers’ temperature variations that can threaten food safety. management reports improved ham yields and While FoodTech staff helps train customers’ employees decreased operating costs among the many benefits in the optimal use of our systems, we also support and derived from this project. work with research centers at FoodTech deploys global resources to serve customers universities and other institu- This FMC FoodTech worldwide. Over the past few years, we have installed tions committed to food safety, batch retort sterilization 12 tomato processing lines in China’s northwestern such as the National Center for system is used by region. We also have provided training on agricultural Food Safety Technology, the National Food Processors O-AT-KA Milk Products practices, machinery for field preparation and seeding, tomato harvesters, preparation equipment, processing Association and the European Cooperative in Batavia, and packaging equipment, as well as initial technical Hygienic Engineering & Design New York, to process and operational support. Group. Our participation in well-known name these organizations helps One of FoodTech’s top priorities is to provide cus- advance the development of brands of canned tomers with systems, advice and training that help safe food processing technolo- evaporated milk, them produce high-quality, safe food products. We gies for the food industry. flavored specialty advance this objective worldwide by conducting exten- drinks and nutritional sive food safety research, development and testing at our food technology centers in the United States, beverages. Europe and Asia. 14 FMC Technologies, Inc. 2002 Annual Report
  17. 17. FMC FoodTech’s state-of-the-art DSI 512 Portioner™ demonstrated here by Training Specialist William Johnson (left) and Dave Below, Applications and Sales Support (above), provides efficient, pre- cise and flexible trimming, portioning and cutting of poultry, ham, beef and fish. This is the same model waterjet portioner that was installed at Burgers’ Ozark Country Cured Hams in 2002. How to say “LISTEN TO THE CUSTOMER” in Spanish FMC Frigoscandia Equipment Iberica importance of food safety. was established in Madrid in 1987, and this In addition to achieving a significant team’s record of success has been built on share of the existing market for freezers, listening to the customer and continually chillers and proofers, listening to customers providing new solutions to the marketplace. and anticipating their needs also has enabled Through strong relationships with the lead- our Iberica team to develop and expand the ing food processors in Spain and Portugal, market. The team constantly pursues innova- this team had a very successful year in 2002. tive solutions encompassing a wide range of About 60 percent of the Iberica team’s new products, such as freezing/glazing solu- sales are repeat orders, indicating a high tions for the fish industry and freezing/proof- level of customer satisfaction. Our team also ing solutions for the bakery industry. holds memberships in various professional Today, our Iberica team has an installed associations, such as “Centro Experimental base of more than 300 freezers, chillers and del Frio,” which allows them to promote our proofers. These installations range across an brand name and capabilities along with the extensive number of food industry seg- benefits of their industry’s products. Their ments, including bakery, meat, poultry, fish active participation in industry organizations and seafood, ready-meals and vegetables. also plays a key role in emphasizing the FMC FoodTech 15
  18. 18. FMC Airport Systems Charts a flight plan for the future The year 2002 was an extremely difficult In airport services’ first year of operation, Airport one for the air transportation industry. Systems’ strong customer relationships enabled us to Economic pressures caused commercial sell our expanded service concept to customers in vari- airlines to postpone or cancel equipment ous new locations. orders and significantly reduce planned capital expenditures. With initial success established, the airport services team continued to introduce new service capabilities to Our Airport Systems business responded to these the industry. Last year, we were awarded a contract by adverse business conditions by streamlining opera- Continental Airlines to provide facilities maintenance tions, cutting costs and redeploying employees and and technology for Continental’s Houston operations. equipment. Three aspects of this business fared well in In winning this contract, our team unseated a 12-year 2002 – the Halvorsen loader program for the U.S. Air incumbent service provider. Force, equipment for air freight customers and our growing airport services business. By listening to the customer and developing a strategy and business model that responds to the unique By utilizing experience and manufacturing capabilities requirements of the aviation industry, we built a “flight from our commercial business, we ramped up produc- plan” for success. In less than two years, the airport tion of the Halvorsen loader in 2002 to meet increased services team succeeded in developing a new, prof- demand from the Air Force. Last year, we delivered 133 itable business for Airport Systems. Halvorsen loaders, compared to 19 units delivered in 2001. We also continued to supply the equipment needs of our air freight customers, such as FedEx and UPS. Our airport services business also had an active year in 2002. This business was established in late 2000 when we recognized the need in the aviation industry FMC Airport Systems pro- for a service company that could vides cost effective, out- add value through technology, a sourced technical analysis factory-certified workforce and in- and maintenance services depth aviation experience. for aviation ground Exhibiting true customer-focus, we support and gate equip- consulted with key customers ment. In 2002, we were while building our service business model, and we engaged customers awarded a contract by to test the model and the mainte- Continental Airlines to nance management technology provide facilities mainte- we developed. The resulting nance and technology for solution for customers comprises cost-effective, outsourced techni- Continental’s Houston cal analysis and maintenance serv- operations. Pictured is ices for aviation ground support Matthew Foster, HVAC and gate equipment. Technician. 16 FMC Technologies, Inc. 2002 Annual Report
  19. 19. FMC Airport Systems delivered 133 Halvorsen loaders to the U.S. Air Force in 2002. Oscar Jeffers, Assembly Specialist, readies a Halvorsen loader in the final stages of assembly at our facility in Orlando, Florida. FMC Airport Systems DELIVERS 100th Halvorsen Loader In 2002, FMC Airport Systems delivered ment in the Berlin Airlift (Operation Vittles), he the 100th Halvorsen loader to the U.S. Air instituted Operation Little Vittles by dropping Force’s 437th Aerial Port Squadron. The event, small parachutes laden with candy to the chil- celebrated at our facility in Orlando, Florida, dren of Berlin, including those in East Berlin, featured Colonel Gail S. Halvorsen, U.S. Air thus earning the nickname, “The Candy Force (Retired), as keynote speaker. Bomber.” The Halvorsen loader can carry up to In addition to Col. Halvorsen, the Orlando 25,000 pounds of cargo and is designed to event featured Major General Arthur J. Lichte serve both military and certain commercial air- and Brigadier General Ted F. Bowlds, both of craft, which are routinely used by the Air Force the U.S. Air Force. These three speakers for cargo operations. The loader is a light- praised the efforts of the Airport Systems weight vehicle that can be quickly Halvorsen loader team in meeting the mili- reconfigured for shipment, driven into a tary’s needs for this important equipment. variety of aircraft and flown to remote airfields Other honored guests representing the U.S. close to battle. It plays a key role in the grow- Air Force included Major General Paul W. Essex ing need and ability of the United States to and Major General George N. Williams. respond rapidly to conflicts around the world. In November, Airport Systems received a Col. Halvorsen, for whom the loader is Halvorsen loader order from the Air Force for named, served as a C-47/C-54 transport pilot delivery in 2003, valued at approximately $35 during World War II in the South Atlantic from million. 1944 to 1946. During his volunteer assign- FMC Airport Systems 17
  20. 20. Strategic Competitive Strengths Energy Production Systems FMC Energy Systems offers an industry-leading mix of • Subsea systems integrated systems, stand-alone products and engineer- • Surface and platform wellhead equipment ing expertise designed to meet the technical, economic • Turret mooring systems and transfer buoys and life cycle demands of customers on six continents. • Tension Leg Platform and floating By focusing on the development of new technology and production technology total capabilities solutions, FMC Energy Systems offers Energy Processing Systems customers added value across its energy product lines. • Flowline products and manifold systems FMC Energy Systems’ deepwater subsea expertise and • Loading systems experience position us as the technology leader for the • Metering systems growing subsea area. • Material handling and conveying systems • Blending and transfer systems • Freezing and chilling systems Concentrating on the convenience food, fruit, vegetable • Coating and cooking equipment and protein segments of the industry, FMC FoodTech • Frying and filtration equipment designs, manufactures and services a comprehensive • Waterjet portioning systems range of solutions for the world’s largest food proces- • Potato processing systems sors and suppliers to retailers, fast-food chains, institu- • Food handling systems tions and commercial restaurants. Our equipment • Inspection detection systems (color sorters) processes a majority of the citrus juice produced • Citrus processing systems globally and freezes about half of the world’s commer- • Food processing systems (sterilization and pasteurization) cially frozen foods. FMC FoodTech’s poultry processing • Aseptic technology solutions are used by industry leaders such as Tyson • Packaging, conveying, optical sorting and Food and Pilgrim’s Pride, and FMC FoodTech products seasoning systems sterilize a significant portion of the world’s canned • Fresh produce protective coating and labeling foods. systems • Commercial and military loaders As an industry-leading supplier to the air transportation • Deicers industry, FMC Airport Systems provides a range of • Push-back tractors equipment, such as loaders, deicers, boarding bridges • Passenger boarding bridges and push-back tractors. Our knowledge base extends • Automated guided vehicles into airport planning, apron layout and gate operation, • Airport services computerized controls and airport management sys- tems. FMC Airport Systems is a global leader in provid- ing products and services that significantly advance the operational efficiency of airports, airlines and air cargo companies, as well as the efficient and reliable cargo handling needs of the military. 18 FMC Technologies, Inc. 2002 Annual Report
  21. 21. outlook Market Opportunities Strategies for 2003 The trend of energy exploration into increasingly Focus on executing major, long-term subsea alliance deeper offshore environments should emphasize the projects. need for solutions based on innovative technologies and proven subsea expertise. Third-party surveys of planned Further develop standardized subsea processes to capital expenditures for global exploration and produc- improve customer value while enhancing margins. tion in 2003 indicate that spending will be in excess of $130 billion, a 4 percent increase over 2002. A major Maintain our deepwater technology leadership and portion of that is anticipated to be for deepwater activ- focus. ities. Stringent industry requirements for both land- based and offshore operations continue to create Expand our intervention services throughout our energy opportunities for providers of cost-competitive, value- operations. added products and services, such as FMC Energy Maintain our leadership position in completion equip- Systems. In addition, the growing installed base of ment for FPSO, TLP/Spar and offshore platform markets. equipment and systems should provide increasing inter- vention service opportunities. To maintain profitability, food processors are being pres- Utilize our low-cost position to capture additional mar- sured to become more efficient and reduce costs. As a ket share as the economy recovers. result, they are consolidating as well as seeking techno- logically sophisticated, integrated systems and services. Capitalize on the advantages of our integrated organi- These trends present potential opportunities for solu- zation to recommend system solutions – from fryer to tions providers, such as FMC FoodTech, which can max- freezer – for our customers. imize the efficiency of food processors’ operations while helping them maintain high standards of food safety. As Leverage our large installed base by providing extensive the economy improves, market opportunities should aftermarket services. expand in this business. The air transportation industry faces difficult challenges. Continue to execute the Halvorsen loader program for Commercial passenger airlines are expected to maintain the U.S. Air Force while exploring opportunities for very stringent cost-containment efforts. Air freight com- expanding our participation in military markets for all of panies are anticipated to moderate their capital expen- our equipment. ditures for the foreseeable future. In the near term, we believe that our best market opportunities in this seg- Expand our global reach by leveraging our installed base ment will be in supplying military cargo handling equip- and customer relationships. ment and improving international market share. We accelerated the Halvorsen loader program deliveries in Grow our service business by providing technical main- 2002 and continue to work with the U.S. Air Force to tenance and support services directly to airports and support expected needs for operations support equip- airlines. ment. In addition, airports and airlines are expected to outsource services that can help lower their operating Position our commercial ground support and passenger costs, which may provide further opportunities for our boarding bridge businesses for profitability when the recently established airport services business. commercial airline business recovers. Strategic Outlook 19
  22. 22. g l o s s a r y o f i n d u s t r y t e r m s CALM (Catenary Anchor Leg Mooring) Buoy – a flexi- Intervention System – a system used for deployment ble marine export terminal system that utilizes a fixed, and retrieval of equipment such as subsea control floating buoy anchored to the seabed. The system modules, flow control modules and pressure caps; also enables fluids to be transferred between a moored used to perform pull-in and connection of umbilicals tanker and either onshore or offshore facilities. and flowlines and to enable diagnostic and well manipulation operations. Christmas Tree – an assembly of control valves, gauges and chokes at the surface that control oil and Jumpers – connections for various subsea equipment, gas flow in a completed well. Christmas trees installed including tie-ins between trees, manifolds or flowline on the ocean floor are referred to as subsea, or ”wet,” skids. trees. Christmas trees installed on platforms are referred to as “dry” trees. Manifold – a subsea assembly that provides an inter- face between the production pipeline and flowline and Deepwater – generally defined as operations in water the well. The manifold performs several functions, depths of 1,500 feet or greater. including collecting produced fluids from individual subsea wells, distributing the electrical and hydraulic Development Well – a well drilled in a proven field to systems and providing support for other subsea struc- complete a pattern of production. tures and equipment. Dynamic Positioning – systems that use computer- Risers – the physical link between the seabed and the controlled directional propellers to keep a drilling or topside of offshore installations, for production, gas lift production vessel (such as a semi-submersible) station- or water injection purposes. Risers can be either rigid ary relative to the seabed, compensating for wind, or flexible and are critical components of these types wave or current. of installations. Flow Control Equipment – mechanical devices for SALM (Single Anchor Leg Mooring) System – a moor- the purpose of directing, managing and controlling the ing system utilizing a single anchor base and flow of produced or injected fluids. single riser, designed to operate as an unmanned marine terminal. FPSO (Floating Production, Storage and Offloading) System – a system contained on a large, tanker-type Semi-submersible Rig – a mobile offshore drilling or vessel and moored to the seafloor. An FPSO is designed production unit that floats on the water’s surface to process and stow production from nearby subsea above the subsea wellhead and is held in position wells and to periodically offload the stored oil to a either by anchors or dynamic positioning. The semi- smaller shuttle tanker, which transports the oil to submersible rig gets its name from pontoons at its onshore facilities for further processing. base which are empty while being towed to the drilling location and are partially filled with water to steady the FSO (Floating Storage and Offloading) System – essen- rig over the well. tially the same as an FPSO without the production facilities. SPM (Single Point Mooring) System – a mooring sys- tem that allows a tanker to weathervane around a HP/HT (High-Pressure/High-Temperature) – refers to mooring point. deepwater environments producing pressures as great as 15,000 pounds per square inch (psi) and tempera- tures as high as 350 degrees Fahrenheit (ºF). 20 FMC Technologies, Inc. 2002 Annual Report


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